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View: Mega plans unleashed in the Budget to spur growth, now it’s all about execution

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India’s first budget of this decade was presented with the clear-cut agenda of stimulating growth on the back of government-led capital expenditure and incentivising investments, aided by significant structural reforms. Two key financial sector reforms that stand out are the formation of the National Asset Reconstruction Company (NARC) and privatisation of banks.

The NARC structure is envisaged to enable book value transfers between banks and a wholly government-owned ARC. To make this mechanism effective, a professionally managed team must be identified for the ARC to attract the right investors and enable full realisation of assets within 5-8 years. The investors should be given the right to bid for individual stressed assets in a transparent process. This self-financing option is a departure from the government-funded resolution platforms globally, but in line with India’s growth aspirations and capital needs.



Regarding the proposed privatisation of two public sector banks (PSBs), this is a start. Strategic players with specialised focus on asset turnaround capabilities could be considered. Permitting large non-banking financial companies (NBFCs) to convert into banks and acquiring a controlling stake in a PSB, with dilution requirements in a phased manner, will provide them with much-needed balance sheet stability and access to low-cost deposits. The current privatisation drive could also unlock opportunities for foreign banks, putting them at par with private banks and allowing them to hold listed Indian subsidiaries through PSB acquisitions.

To accelerate asset monetisation, in addition to infrastructure investment trusts (InvITs), there is a proposal to set up a special purpose vehicle (SPV) to monetise land owned by the government and public sector enterprises (PSEs) through sale or concessions. Large tracts of idle land, instead of fresh acquisitions, can be utilised to meet housing and industrial requirements, while also realising significant value from land parcels that are now in city centres.

A portion of these revenues should be ploughed back for infrastructure augmentation in the city, while addressing the social cost of dislocation of existing occupants through a comprehensive rehabilitation package. States’ cooperation with respect to stamp duty rationalisation, change in land use and development clearances will be important. In addition, legacy assets with PSEs can be monetised through sale and leaseback in a real estate

(REIT) structure, which would need changes in income-tax and stamp duty laws.

To improve tax certainty and reduce disputes, new institutions have been brought in. Two existing institutions — the Settlement Commission and Authority for Advance Rulings (AAR) — are being discontinued. With unavailability of Supreme Court or high court judges to head AAR, applications have piled up with an average disposal time of four years. The proposed Board for Advance Ruling (BAR), comprising high-ranking tax officials not below chief commissioners of income tax (CCITs), will function in a faceless manner, with the distinguishing feature that appeals can be made before a high court by both taxpayers and the tax department.

A key ingredient for BAR’s success will be a speedy admission process and time-bound rulings. BAR members should have exposure to international tax and access to technical units created under the faceless assessment scheme. Most importantly, the rulings should be definitive and complete, ensuring that complete adjudication is done. The Settlement Commission was ineffective after it was made a once-in-a-lifetime measure for taxpayers with a high tax effect threshold of a minimum of `10 lakh. The move to discontinue the Settlement Commission reflects GoI’s determination of not giving any opportunity to tax evaders.

The new Dispute Resolution Committee (DRC) will resolve disputes — other than serious cases like search or survey — for small taxpayers in a faceless manner. This is welcome, and DRC’s scope should be expanded to include mid-size taxpayers. The current thresholds of returned income of Rs 50 lakh and disputed amount of Rs 10 lakh should be enhanced to Rs 50 crore and Rs 5 crore respectively. The DRC must be constituted at the earliest with competent personnel, with its performance monitored in terms of timebound resolution of cases. It should also be clarified whether DRC can settle pending litigation cases.

GoI must also focus on capacity building for accelerating advance pricing agreements (APAs). APAs have been very effective in providing certainty on transfer pricing matters. However, due to lack of capacity, the APA process has slowed down in recent years resulting in a large pendency of about 760 cases. Overall, the budget will be remembered for many path-breaking reforms to spur growth. With the right policy initiatives, the focus should now be on execution.


The writer is chairman-CEO, EY India.

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